II. Clearing Houses in England
THE LONDON BANKERS' CLEARING HOUSE AS THE FOREMOST EXAMPLE
[135]The exact origin of the London Bankers' Clearing House will probably never be determined, for, like other institutions whose purpose has been to save time and trouble, its system appears to have been gradually evolved.[136]
With the growth of the check system, each banker would daily find himself in possession of a number of drafts for the credit of his customers that needed collection at the offices of other bankers. This would necessitate each bank sending out one or more clerks on what became known as "walks" to obtain cash or notes for these drafts from the houses on which they were drawn.
As in London alone there were some fifty or more private firms carrying on a banking business this necessitated a considerable amount of work and was attended with grave risk of robbery.
It is probable, therefore, that arrangements were made by some of the bankers, as it is still done in some country towns, to meet at one bank one week and at another the next for the purpose of exchanging checks.
But in consequence of the number of the London bankers this method would prove awkward, and about the year 1770 we find that the walk clerks from the city and West End banks had made a practice of meeting at lunch time at a public house called the Five Bells in Dove Court, Lombard Street, close to St. Mary Woolnoth Church, and not so very far from the site of the Bankers' Clearing House of to-day. Here in the public room, or according to tradition on the posts in the court outside, each day after lunch a rough system of exchange of checks was carried on between the clerks from each bank, the balances being settled in notes and cash. From this rough system has developed the efficient organization of to-day.
In May, 1854, the clearing house was closed for alterations and enlargement, and the business was temporarily carried on at the Hall of Commerce. Here, on June 6, 1854, applications for admission to the clearing house were received from the following joint-stock banks: The London and Westminster, the London Joint Stock, the Union Bank of London, the Commercial Bank of London, and the London and County Bank; and it was resolved "that the secretary be authorized to comply with such applications, subject to the payment of an annual sum to be fixed by the committee to reimburse them for the outlay that has been found necessary to afford accommodation for their admission." There were at this time 25 private banks in the clearing house.
Following on the admission of the five premier joint-stock banks in 1854 there were frequent applications from other joint-stock banks—many from the moment of their foundation. But the wise reply of the committee was invariably that they did not "deem it expedient to take into consideration such applications from any banking establishment that has not been in operation at least for a period of twelve months."
Though the joint-stock banks had been admitted to the clearing house yet they were only allowed to rent seats there and had no share in the management, so for the support of their mutual interests they had a committee of their own which settled the rate to be given by the joint-stock banks in the London district for deposit money at seven days' notice.
In 1858 the country bankers submitted a plan for establishing a country bankers' clearing house in London and proposed that the clearing house committee should appoint two or three of their number to unite with them as a working committee.
The establishment of a separate country bankers' clearing house would have led to many inconveniences, and Mr. John Lubbock, now Lord Avebury, submitted a plan for carrying out a separate country clearing at the clearing house. The committee approved the plan and submitted it to the country bankers' committee, who also gave their approval.
Thus was instituted at the Bankers' Clearing House the country clearing, which more than all else has brought about the almost universal use of checks in England, to the exclusion of notes and coin.
Mr. Lubbock's scheme was so well thought out that from its initiation to the present time the rules have had to be only very slightly modified.
In 1864 the Bank of England entered the clearing house to clear on one side only, the outside, for though the bank presents to the clearing bankers at the clearing house all checks payable by them, all checks and bills drawn on the bank are presented by the clearing bankers at the bank itself, and the proceeds placed to the credit of each bank's account. At the same time the governor of the Bank of England was made ex officio a member of the committee of clearing bankers. After 1864 few changes were made in the working of the clearing house, the volume of the country and town clearings increased greatly, but the house proved capable of meeting any increase.
Friction between the old private bankers and the joint-stock banks grew less as amalgamations and absorptions increased, and before many years the committee of London clearing bankers and joint-stock banks committee amalgamated, it being agreed, as a condition of the joint-stock banks committee ceasing to exist, that all the banks would abide by the ruling of the committee as to the rate of deposit at seven days' notice. Henceforth, every bank in the clearing house was entitled to have one representative on the committee. Such representatives have hitherto been chosen solely from the board or the partners and are nominated by their banks and formally elected by the committee. The committee elects its own chairman, vice-chairman, and honorary secretary. This committee meets regularly on the first Thursday in each month, Thursday being the day on which the Bank of England in normal times makes any alteration in the bank rate of discount, but it may be summoned by requisition at any time and meets automatically should the bank rate be altered, since this governs the rate of deposit allowed by the bankers.
The committee has full power over all clearing house matters, and from the importance of the banks who compose the clearing house its opinion carries very great weight on all matters in the banking world. It is, however, controlled only by the mutual agreement of its members: and the decision of the majority of its members, though followed loyally, is never used with any ultimate power of compulsion in matters affecting banking in general.
In 1907 a third clearing, the Metropolitan, was established. Hitherto, with the exception of one or two city offices which were included in the town clearing, the collection of drafts on London branches of the clearing banks had been effected by the post and by the sending out of walk clerks by each bank; but in 1907 it was determined to do away with such means of collection as far as possible and to collect the branch checks through the clearing house. This proved so successful that the West End banks were approached the following year, and with one exception readily consented to come into the new plan by which their clearing agents had delivered to them at the Metropolitan clearing all checks drawn upon them. This clearing is the first clearing made each morning and is handled so expeditiously that even the most distant London branches get their checks almost earlier than under the old system. They have, therefore, plenty of time to go through them and to make returns of any checks that cannot be paid in time for such return checks to reach the clearing house early in the afternoon. There are now over 330 banks and branches using this clearing.
For the better defining of the three clearing areas—town, metropolitan, and country—the letters T M C have been placed in the corner of all bank checks. From February 19, 1907, the date of the initiation of the Metropolitan Clearing, up to December 31 of that year, £482,227,000 was paid in this clearing, while for the year 1908 the total was £647,842,000, as compared with the town clearing total for that year of £10,408,254,000 and the country total of £1,064,266,000, making in all a grand total of £12,120,362,000, which figures, vast as they are, were a decrease of £610,031,000 on the total £12,730,393,000 for the previous year, 1907.[137] The work entailed by such vast figures as these could scarcely have been dealt with by hand alone, but by the installation of adding machines the work is easily and quickly done.
It must not be thought that all checks on London are presented through the clearing house, for checks on the London branches of the Scotch banks and of the colonial and foreign banks are still presented over the counter.
Moreover, though it is mutually understood between the clearing banks that checks on each other will only be presented through the clearing house, this agreement has no legal binding.
Two exceptions are continually made; documents or goods have to be taken up against cash, and the owner before parting wishes to be certain of his money. In this case the presenting banker either presents his check for marking—that is to say, the paying banker having ascertained from his customer's account that there is sufficient money thereon, marks the check for payment, which has the same effect as if the banker had accepted it; or, as is becoming more usual, the paying banker gives one of his own drafts on the Bank of England in exchange for the check.
PROVINCIAL CLEARINGS
Besides the London clearing house, which is an irregular building of no architectural features whatever, there are eight provincial clearing houses in England—Birmingham, Bristol, Leeds, Leicester, Liverpool, Manchester, Newcastle and Sheffield.[138]
Two only of these clear over £100,000,000 in the year. Manchester cleared £320,296,332 in 1907, with an average weekly total of £6,159,545 and an average daily total of £1,039,923, and Liverpool £196,325,829. The others cleared in the same year from £12,000,000 to £61,000,000. Small figures, indeed, compared with London, where the highest total paid on any one day was, in 1907, £106,703,000. In 1908 the highest total paid in one day in the London clearing was £85,833,000 and the lowest £24,903,000.
In London, as in the provincial places, the object of the clearing house is primarily the convenience of exchange of checks, not the regulation of banking, and little is regulated save, perhaps, the rate of interest to be paid on deposits at seven days' notice.
In these days, too, when the tendency is strong for amalgamation, the local banks are dwarfed by their gigantic competitors, with their branches in many counties and head offices in London, with the result that London each year controls more of the banking in England and the provincial clearings cease more and more to be under local control, but are controlled by their London head offices.
This may, if the present tendency of amalgamation continues,[139] result in the committee of London clearing bankers becoming an important controlling body, but that time is not yet at hand, and though, as we have said, an expression of opinion on the part of the committee carries very great weight, yet anything like dictation would very properly be resented by the important and old-established banks in both London and the provinces that are outside the clearing house.